Important to understand fundamental flaws of our economy: Shaikh

Adviser to Prime Minister on Finance, Revenue, and Economic Affairs Dr Abdul Hafeez Shaikh said on Monday it is important for us to understand the fundamental flaws in our economy while realizing Pakistan’s considerable indebtedness.

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Addressing the press conference presenting the Pakistan Economic Survey report on the economy for fiscal 2018-19 prior to the presentation of the federal budget for the fiscal year 2019-20, Shaikh called attention to impending debt repayments representing the harshness of Pakistan’s economic crisis.

Shaikh stressed, “this Rs31 trillion loan and Rs3 trillion interest payments becoming due in the next few years are our biggest challenge,” adding, “we need to keep it at the forefront of any discussion on the economy.”

Regretting the country’s incapability to repay he nearly $100bn in loans that policymakers in the past took out, Shaikh said, “this is an important issue which threatens Pakistan’s economy. We are highly exposed to foreign loans and foreign exchange which is not matched by our capacity to pay it back. No one has paid any attention to increasing this capacity.”

Noting the $32bn trade deficit, Shaikh said he is not here to play the blame game, but stressed nevertheless that necessary reforms to increase exports have not been taken.

The finance adviser, while bringing attention to the need to reorient government policy to enhance exports, said, “if you look at countries who have made meaningful progress over the last 20 years, they all did one basic thing: they figured out how to sell their products abroad.”

He also highlighted public expenses, realizing that the government was spending Rs2.3 trillion beyond what it was generating in revenues.

He elaborated, “if you spend trillions beyond your income, you will need to borrow, print money and increase prices. These all lead to increased inflation.”

“We are already exposed on the external front, and we have imbalances in our revenues and expenditures as well. We have a twin deficit which, if it is not resolved, will lead us to a default. Make no mistake about it,” he added.

Shaikh further said, “Prime Minister Imran Khan had committed to the people that he will do things differently and correct our imbalances in a permanent manner. Even if we have to bear [the pain] for six months, a year or a year-and-a-half, [we are committed to the process].”

“Naturally, the government started by addressing the key threats. First, imports. We were importing all sorts of things, and we had to control that. If we were facing a shortage of dollars, we do not need to buy luxury goods from abroad.”

“We increased prices through tariffs so that if the rich wanted to purchase these items, they would have to pay extra. Duties were increased, and these measures contributed to the narrowing in the current account deficit,” he added.

“Separately, the government created incentives and new policies to boost exports. It gave more subsidies out of its pocket on power and gas to exporters and business. [Commerce Advisor] Abdur Razzak Dawood will share the details. We wanted to help exporters, and they should have no excuses anymore. We are a poor country with a poor economy, yet we have helped them.”

Shaikh, while discussing foreign front, said the government tried to safeguard the nation by mobilising dollar resources. “The prime minister himself raised $9.2bn dollars from three countries. Similarly, we received a deferred payments facility was secured from Saudi with a $3.2bn program. We secured a similar program from the Islamic Development Bank,” he added.

“The people will see we are ready to impose fiscal discipline, balance our revenues and expenditures and live within our means. In the coming days, you will see bigger decisions that will show [our commitment to implementing] austerity.”

Shaikh said, “we have moved to secure $6bn from the International Monetary Fund, and we will secure another $2-3bn from the Asian Development Bank,” adding, “but by taking dollars from here and there, we cannot make Pakistan a prosperous country. We will need to fix our institutions and enter partnerships with foreign businesses looking for opportunities.”

“We will need to pay attention to our people and help them improve their skills. They should make things the world wants,” he added.

Pakistan achieved a GDP growth of 3.3 percent during the outgoing fiscal year, falling short of its targeted 6.2 percent, said Shaikh.

The important sectors of the economy, such as growth and investment, agriculture, manufacturing, mining, fiscal development, money and credit, capital markets, inflation, and debt and liabilities were covered by the survey.

The survey also highlighted the performance of agriculture, education, and health and nutrition, besides showing the overall population, labour force and employment, poverty, transport and communication, and per capita income.